If you make quarterly estimated tax payments, mark your calendar: the third installment for 2025 is due Monday, September 15. This year’s payments may be impacted by the newly enacted One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, which introduces several tax deductions, credits, and provisions that could affect your liability.
Understanding Estimated Tax Payments
Estimated tax payments help ensure that individuals who don’t have sufficient federal tax withheld—such as those earning income from self-employment, dividends, interest, pensions, or capital gains—stay compliant throughout the year.
To avoid penalties, most taxpayers must pay 25% of their required annual payment by April 15, June 15, September 15, and January 15 of the following year. If a due date falls on a weekend or holiday, the deadline shifts to the next business day. Payments are submitted using Form 1040-ES.
How Much Should You Pay?
Your required annual payment is typically the lower of:
- 90% of your current year’s tax liability, or
- 100% of last year’s tax liability.
If your adjusted gross income last year exceeded $150,000 (or $75,000 if married filing separately), the threshold increases to 110% of last year’s tax liability.
Most wage earners meet these requirements through employer withholding. Others must divide their annual payment into four equal installments. However, if your income is seasonal or uneven, you may qualify to use the annualized income method, which allows for smaller payments based on actual earnings during each period.
Avoiding the Underpayment Penalty
Failing to make required payments may result in an underpayment penalty, calculated using the IRS interest rate on deficiencies. You may be exempt if:
- Your total tax due is under $1,000 after withholding,
- You had no tax liability last year and were a U.S. resident for the full year,
- You file your return and pay in full by January 31 (for the January 15 installment),
- You’re a farmer or fisherman and meet special payment deadlines.
The IRS may also waive penalties due to casualty, disaster, or other unusual circumstances, or for reasonable cause during the first two years after retirement (age 62+) or disability.
Key Tax Changes Under the OBBBA
The One Big Beautiful Bill Act (OBBBA) introduces several changes that could reduce your estimated tax payments:
- A temporary $6,000 deduction for seniors (2025–2028),
- New deductions for overtime pay, tips, and auto loan interest—even for non-itemizers,
- An increased state and local tax (SALT) deduction cap for eligible taxpayers,
- A boosted Child Tax Credit.
These changes apply during the tax year, meaning they can lower your quarterly payments mid-year. Recalculating your estimates now can help you avoid overpaying or facing penalties.
Need Help?
If you’re unsure how the OBBBA affects your estimated payments or need help calculating your next installment, contact us today for personalized guidance.